Weekly Indices Review - 09 November

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The US Tech 100 has been in an extremely interesting range since the outbreak of the pandemic. On the weekly chart the collapse in the index now appears to be rather modest affair, dropping down to 6645.

As since then the index powered higher to post a move up to16,750. Driven by Federal Reserve QE, Stimulus funds, and widespread “stay at home” based buying. Through 2022 the high growth names that dominate this market came under increasing pressure from the US hiking interest rates.

Which affects higher growth names stocks over purer value plays as so much of the current value of growth names is derived from expected future earnings, and which are as a result discounted greater by expected future higher rates.

Has this Fed tightening cycle now been priced in?

Hopes of a Fed pivot have increased in recent weeks and the Fed has confirmed that the series of 75bp rate hikes may have now passed, to be replaced by 50bp hikes. Allowing some buying interest to build in recent days.

The 61.8% retracement area at 10,506 remains key, while this area can hold this recent buying interest may be able to build momentum. Interestingly the RSI on the last leg lower did not post a new lower low, suggesting that the selling momentum may already have turned.

Often after a major move price action can retrace around the 50% level of the move, around the 38.2-61.8% levels as outer ranges. Were this pattern to hold once more current areas are likely to appear attractive to the more medium to longer term investors on the hope that a move to the 38.2% area, at 12,891, at least could occur in Q4. Although in order to push on through that serious resistance area we suspect that we would need to see much more concrete data on US inflation coming under control, putting a relatively tight upside cap on any buying momentum that could grow.